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March 31, 2014

Holding Down Hospital Costs

After last Thursday's post about staying in your home versus making the move to a care facility, you may be worried I have become somewhat fixated on health and death. No, not to worry. It is just that last week's post and today's deal with subjects that readers have asked about. Plus, today's subject is one that drives me crazy. There are fewer things that push me over the edge quicker than the absolutely ludicrous way medical care is priced in our country. There is virtually no way you can comparison shop, or even know what your bill will be until you try to check out. What other area of our economy has the nerve to sell a service without letting the consumer know the cost before committing to that service?One year ago Time magazine had a cover story about hospitals and their chargemaster system. Entitled, The Bitter Pill, it detailed the complete disconnect between what hospitals charge for their services and reality. The article showed the huge price differences for the same procedure in different parts of the country and for different types of insurance.The simple fact is that those without insurance or the ability to pay are charged the most for any services. On the other side of the spectrum, hospitals accept a small percentage of that maximum charge from Medicare. There is obvious unfairness of going after those least able to pay with the biggest bills and the very real possibility of bankrupting or financially ruining lives just because they can.Yes, I know hospitals must treat anyone in the ER, regardless of insurance. A high percentage of those costs are eventually written off. But, to go after the poorest among us with guns blazing to make up for a flawed system is just not right.Our system is not designed to make us healthier, in fact Americans rank dead last when compared to 16 other developed nations all while spending 250% more per person. True, we lead the world in medical technology and cancer research. But, for the day-to-day health needs of our citizens we perform terribly. Ours is the only country in the civilized world where our health options are controlled by private or publicly traded corporations who sell health services and prescription drugs for a profit first, and good health second.All of this leads me to a story I saw recently that gives me hope that the shroud of secrecy over what hospitals charge may be finally showing some tears. A new web site is making an attempt to allow us to comparison shop, to have medical professionals and facilities compete for our business. Isn't that how capitalism is supposed to work? Don't we look for the best deal and service before we plunk down our money, particularly for something that may cost six figures?Medibid.com has been around since 2010, but just recently has been getting all sorts of press and mentions. My guess is our increased focus on the actual cost of our healthcare system because of the ACA (aka Obamacare) has begun to make people more aware of what it really costs to use our system. Medibid allows the consumer to have doctors and hospitals or clinics bid on the cost of an operation or procedure. No longer must you shop in the dark. You get a guaranteed, in writing bid.You may be asking yourself, "but why do I care? I have insurance. Whatever they pay, they pay." I'd suggest there are two major flaws with that conclusion. First, your policy is going to cost you more every year in both premiums and a larger deductible with diminished coverage. That trend started over two decades ago, well before the ACA. While you could argue the new healthcare law has made it worse, I would ask, compared to what? Health insurance costs have averaged almost 15% higher every year. If you are part of the 80% of Americans who get health insurance through work you have been largely insulated from the true cost of taking care of you and your family. Only now are you beginning to see what our system really costs. One thing this is absolutely is true is that health costs would not go down.But, that isn't really where I want to go with this post. For all sorts of reasons Obamacare discussions tend to become filled with emotion and more heat than light. So, leave that landmine alone for now and consider the second reason services like Medibid are potentially good: by allowing consumers to compare prices, hospitals and providers will be forced to compete for business. In our economic system competition means lower prices. Over time, maybe the absurdity of $15,000 a day hospital rooms will disappear.One very important disclaimer: I have never used Medibid. I have no connection with the company. I start Medicare coverage in one month so I will be largely insulated from our silly system's costs. Medibid may eventually fail for lack of support or some other reason. But, what it shows me is a movement toward transparency in medical costs.....and that is a good thing for all of us.

31 comments:

I work in hospital management, and have researched and written much about the status of US healthcare. Your article is touching on the ugly reality of the broken US healthcare system. You are spot on with your assessment that we have the greatest science and technology, but the absolute worst system of care and payment.

Reductions in payments from Medicare and private insurance are forcing hospitals to become more business savvy, while at the same time be the only business model that must accept all patients including those with no ability or intention of paying. There is still a ways to go, but cutting funding to healthcare is forcing more efficient business practices. Concurrently, the quality of care is more focused (see http://www.medicare.gov/hospitalcompare/search.html). So our current leadership challenge, and one which I enjoy professionally, is to improve outcomes and reduce costs.

There is one other significant factor with health care costs. The personal health risk habits of each individual have a significant burden on healthcare. It is essential for all of us to improve controllable health behaviors. Abundant research exists to show the effects of unhealthy choices on healthcare.

I could write forever on this topic, but will conclude with thanking you for your realistic outlook on this topic!

Thanks, Tim, for your concurrence from an "insider's" perspective. To allow our health to be dictated by a profit move at the exclusion of the actual performance of that business is absurd. Those who provide a better quality product will have all the business they can handle, and everyone will save money.

I read a few days ago that 1 in every 25 Americans who goes to a hospital gets an infection from the hospital environment. That is insane. The place you go to get well makes you sick.

Yes, it is our responsibility to take care of ourselves. One of the benefits of Obamacare is the new awareness of the costs of poor health habits to each of us. But, excuse me, it is the hospital's responsibility to not make be sicker than when I went in, and to provide me the care I need at a price that has even some connection to reality.

At the moment our system works under the premise that if you dying or need surgery you don't ask the cost. You will pay whatever is demanded of you. That must stop.

The other complicating factor is the quality of services provided. NY state has a system where they rank the hospitals and doctors according to things such as rate of infection, complications, and or death. The frustrating thing about this is that it does not always fairly account for co-morbidities. Some hospitals will refuse to do open heart surgery on a patient because they consider the person at too high at risk. However your state run hospitals are not as selective. Hence, they have a higher death rate due to treating the sickest of the sick. The system for evaluating these hospitals and doctors say they take this into account, but I'm not so sure they do it in a way that is fair to all.

Now add this to the mix of trying to get the most for your money. Very complicated.

Your post is right on the mark. The industry (no longer the practice) is out of control.I wish they would take it one step further and rate doctors! After the doctors are rated, then the vow (a bit stronger then promise) that the chosen doctor is the one who actually does the work!Reasonable health care for all is a first step. Now we have to be able to do some weeding of the ranks and fill in the gaps with people who are motivated by incentive to move our health care into the 21st century.

Your post illustrates why far reaching health care reform is essential.The system in our United States is shameful! I suggest watching an excellent documentary which will help you understand even more about what' happening with our health care system.. it is a poignant and VERY interesting film, especially if you somehow think that health care and health statistics in the U.S. are SOMETHING TO BE PROUD OF...we rank far below MANY nations in many areas, including infant mortality.

I have seen that movie on Netflix. It is, in part, what prompted this post.

The folks who get all upset whenever anyone questions the motivations and quality of our health care providers remind me of those who protested that the earth was flat...for hundreds of years after it was obvious we live on a round ball. To admit that the system of ours may not be perfect and may need improvement is like waving a red flag in front of a bull.

Great post and info. I'd like to add a few interesting tidbits: After retirement (I was a teacher), I dabbled in doing medical transcription work from home. Starting out it was okay but after a year a lot of my accounts got pulled and sent to India as the labor was cheaper. I eventually packed it in but learned a lot during my tenure. First, that doing medical transcription from home does bring in money but it is way below minimum wage while having to supply your own computer, internet, antivirus software, etc. Second, that the HIPAA laws are a joke considering that there is a good chance that your medical records are typed by somebody in India. Third, that EHR (electronic health records) might be the future but that trained and efficient medical editors are still desperately needed. Fourth, that big pharma companies are actually the ones that WRITE the training texts for physicians! (That's the one that scares me with all the ramifications implied!). Fifth, that Canadian medical transcriptionists were amazed and nonplussed that U.S. doctors prescribed so many more medicines for conditions than Canadian physicians (duh--see #4). Sixth, that currently (as noted in a recent Medical Economics Magazine) the efficiency rating for correct hospital/medical billing by medical billing coders was only 76% and that come October of this year the whole coding/billing system is being revamped that will result in a big learning curve for those medical coders. Yikes! All I can say is that if you do end up in the hospital I'd check that bill if I were you. Probably a good idea as well to get a copy of your medical records to check for accuracy.Have you written/researched anything on the growing phenomenon of medical tourism where patients travel to other countries for cheaper medical operations, home care, etc.?

Again, I really am glad some folks who have worked in this field are participating. You paint a picture that is unsettling, but not surprising.

This post is primarily meant to inform readers that there are the first stirrings of competition for medical services. I doubt anyone would see free market competition as bad. But, as the comments make clear, the issue is a lot deeper and scarier than most of us realize.

I have not written about medical tourism, but maybe it should go on my future post idea list.

As far as the use of pharmaceuticals go in the US it is easier for the physician to write a prescription then to spend more time with the patient. Also patients in the US tend to want something to solve the problem. As a result if in doubt write a script. Rather then tell a patient they need to change their lifestyle prescribe a drug. Then prescribe another to counteract the side effects of the first.

This comment I will make in capital letters:

THE US CONSUMER BASICALLY FUNDS DRUG DEVELOPMENT ACROSS THE WORLD.

A decision to forward or not in drug development is primarily driven by the market for that drug in the US. If a profit can be made there, development continues, if not it is usually shelved. Very few drugs are developed that are not intended for the US market. Some get approved in other countries and not in the US, but those are primarily ones that could not get approval in the US or are different delivery methods (the morphine inhaler in Australia is an example of a different delivery method). Even the EU has seen a dramatic drop off in NCE (New Chemical Entity) submissions. Very very few are submitted that have not been submitted first in the US.

Let me note, that so far, there have been no comments that veer into a rant against or unqualified support for, Obamacare. I have not deleted any nasty comments.

I appreciate that. This post is about bringing down the costs of medical care and increasing the accountability. I can't believe anyone would think those two objectives are bad, but I have been surprised before.

Thank you for staying on topic and discussing how we make this part of our medical system better through good old competition and openness. They are two of the important pillars of the American economic system. Isn't it time that hospitals and medical providers got on board?

The major problem with the US healthcare system is largely three interrelated areas. 1. The lack of transparency 2. the disconnect between patent payments (largely insurance costs) and consumption of services and 3. malpractice potential

All of which could be easily addressed, with fairly simple laws.

Taking a look at item 1. Providers charge different amounts to different people for the same service. Payers pay different amounts to different providers for the same services. None of which are easily available. Record of provider quality are secret (even malpractice court cases are usually sealed). Resolving this would be fairly simple. All you need is a law that says that a provider can charge whatever they want, but they have to charge all patients the same for the same service as broken out by ICD9 code. That price list would have to be published and easily available and they would have to provide 30 day notice prior to a change. Insurance companies would also have to publish the list of what they would pay for a given service under your policy using the same codes. No more smoke and mirrors of different rates depending if you have an insurance policy, or government program, or no coverage. That would very soon create a focus on the true cost of providing care and eliminate the balloon like system we have today where if one group (government programs) cuts their payments, the costs go up elsewhere to compensate.

Item 2. The spiral down in the US system can be traced to the shift from the old 80/20 major medical systems in the 50's/60's to the HMO, managed systems starting in the 70's and 80's, coupled with a rapidly increasing of the market being paid by government programs. As a result of those changes you have more of the payments by consumers going into insurance payments and less at time of service. That reduces the incentive of the patient to determine costs or to try and reduce costs. This means less discussion with physicians on the need for tests and procedures and coupled with item 3 means that a tremendous increase in their use. This is especially noticeable in government programs. This also impacts end of life care. Over half of all Medicare expenses are during the last year of life and a high percentage of that is during the last couple of weeks. In the US we are far more likely to end our life in intensive care then in most other developed countries that make more use of hospice and pallative care at end of life situations. A better system for mandatory insurance would be to copy Sweden. They require everyone to buy insurance, sold by private companies. However, instead of having a law that requires all kinds of things to be included that are not needed for the buyer (maternity coverage for a 57 year old male for example) that kicks up the cost, the Swiss have a bare bones basic policy like the old 80/20 with a max out of pocket that the insurance companies must sell at cost. The way insurance companies make money there is on the upgraded policies. The barebones might cover hospital stays in a ward, where the upgraded would cover private or semi private rooms. The upgraded might be 90/10 or no out of pocket, etc.

Item 3. I would copy something from the Japanese here. They have something called the Drug Agency. It collects a percentage on all pharmaceuticals sold. If someone has an adverse reaction, they don't sue the drug company. They fill out an application to the Drug Agency and it pays based upon the actual damages. No attorneys, no legal cases, no out of court sealed settlements. So lets expand that in the US and create what I will call a Medical Court. If someone has a situation of malpractice they would submit a claim to the court. It would review, both to determine damages, and to evaluate the standard of care. The results of the courts review, as far as the provider is concerned would be public. The patient name and info would not be public, only the number and type of claims and the court review results related to a provider.The court would be funded by a percentage of fees from service providers (far far cheaper then malpractice insurance costs today).

These could be done by very simple changes, would lower costs, improve transparency, and streamline the system. Would never happen because too many vested interests including patient advocate, providers, insurance and politicians.

A lot of the costs in the US system are tied to the malpractice system, as well as the way providers are paid. I could write a book here on these areas. Because of the threat of malpractice Doctors would tend to order too many tests and procedures. This is also impact by the competitive nature of the hospitals and service providers. Each hospital wants the latest equipment. Now even out patient clinics have expensive diagnostic equipment, such a MRI and cat scan. We have far far more equipment then any other country. If they have it, they have to pay for it and it will get used.

This is also impacted by how providers are paid. You had a big move for physicians to start up outpatient surgery and diagnostic centers. Often the doctor you go to has a financial interest in the outpatient clinic you are sent to for a test. It is questionable about the value of many of the "required" preventive tests or at least the frequency they are currently being run at. Today you have a big move for hospitals to buy medical practices, outpatient facilities and labs. The reason why is because government reimbursement is higher for many procedures if charged by a hospital then by an individual doctor practice.

Malpractice and billing practices also impacts end of life care and costs. Doctors will continue extreme measures after all reasonable expectations of recovery are past. you would not believe the tests that get ordered and performed in these circumstances.

Rather than comment after each of your thoughts, RDC, I will just summarize here by thanking you for taking the time to detail so many of the flaws in our current system as seen from your perspective. From a layman's point of view, I am hard-pressing to argue with much of anything you say.

Our system has been flawed for years and continue to be so until the public rises up and says enough already. Politicians won't do it, they have too much big money keeping the status quo in place. Pharma won't change unless forced to - why would they? Hospitals and doctors can't afford to change until the underlying system is fixed.

The ACA was just a step in the right direction. Obviously to anyone who has thought about this in depth is that the Insurance system causes the problem. Hospitals and other health providers will charge what they can get, and that is what the insurance companies guarantee for them plus the smaller amounts the rich and those foolish enough or unable to be insured contribute. The solution is to get the insurance industry out of the picture. The only realistic way to do that is to make the government the single-payer. We could go to "Medicare for all" rather easily. That would be a drastic reform, but it would work.

I don't believe there are many, including President Obama and the law's most ardent supporters, who wouldn't agree that the ACA was just one step forward, but it has many problems and needs lots of fixes.

A study I read yesterday shows 53% of the American public don't like Obamacare, but in a tremendously important finding, an even larger percentage don't want it repealed, they want it fixed and strengthened. That tells me we are beginning to grasp the failure of our approach to health insurance and care for the last several decades.

I don't want to open the door to a discussion of a single-payer system in this post but want to stay focused on the need for more openness in pricing and accountability. You are so right that the insurance system, as presently constituted, is the elephant in the room we must deal with. Maybe companies like Medibid will help.

I think RDC has offered a good analysis. I just have two things to add. Nobody has brought up the absurdity of pharma companies advertising prescription drugs on TV and other media, trying to push their products. The govt. should say it won't pay for drugs advertised on TV. The other thing is unrealistic expectations. I remember a poll a few years ago asking people about medical insurance. The vast majority said health insurance was absolutely necessary to have. And the same people said it should cost about $75 a month.

The millions (or is it billions) big drug companies spend to create an artificial demand for their product, coupled with the money given to politicians, and the special perks given to doctors all spell trouble with a capital T.

I hadn't seen that poll you refer to but I don't doubt it. Most people have been completely isolated from the true cost of health care. To think $75 is a fair monthly rate shows an alarming disconnect from reality.

Just keep in mind that drug development costs are huge. Out of 100 that enter phase 1 clinical trials 99 fail. Even 4 out of 5 that make it to phase 3 (the last and most expensive phase) fail. Cost estimates for a oncology drug for a small orphan market is at least 350 million in development costs. Development for a product for a large chronic market is in the billions. One estimate I have seen is that a large pharma company such as JJ is spending between 3-5 billion in R&D for each new drug approved. One can limit drug costs. The challenge is can you do so while still getting new drugs out of the pipeline. As I said above the US is basically funding and subsidizing drug development for the rest of the world. As others have put in place price controls the pace of drug development has dropped in their regions. Today most new drugs are developed with approval in the US market being the goal. The question is not if you can limit prices on existing drugs, that can be easily done. The question is what drugs won;t you have in 10, 20 or 30 years from now if you do.

If you spent 3-5 billion just to get a drug to market, a drug with a limited patent lifetime, where you now have to compete with other products, for sales, formulary positions, reimbursement wouldn't you try and maximize those sales. If you didn't you would not remain in business and you would not be generating any new drugs.

Is it not true that studies often show older drugs work just as well, if not better, than the latest one? We have a mindset that newest is always better and we should constantly reject the tried and true for the latest and greatest (to use two cliches in the same sentence).

Obviously, there are many times when a new drug does something better. My point is our mindset is to always move forward in this area, even when the cost benefit isn't there or the established drug is fine.

Depends upon the drug and category. There are a lot of me too drugs out there. If a generic exists use the generic, only go to branded in the category if the generic does not manage the indication well. If one really wanted to make pharmaceuticals more efficient all you would need is to go to mac pricing for insurance coverage. What mac pricing is that you take a look at an indication (disease or condition) and see what the lowest cost effective treatment is. Set that as what the insurance would pay. The patient could get a different drug, but they would have to pay the difference. That would greatly reduce pricing power for those drugs that do not show clear clinical advantage. This would also require pharmaceutical companies to run head to head trials against existing drugs (something seldom done) to show that clinical advantage. Now that would reduce the cost of most products that are similar to or show similar results, but would probably result in higher cost for those drugs that are really breakthrough and show significant clinical advantage due to the need to recoup development costs on a smaller set of drugs. Would cut down on me to drug development, would reduce prices on those and would focus the drug companies on break through products.

The question is exactly how. If by national science you mean the government research groups such as NIH, it probably would not work. The first reason is funding. Where are the billions of dollars going to come from to support the research. The second is that they have not exactly been successful in doing anything effective with the funds they have received. They have funded some studies on existing drugs to look at effectiveness, some basic research, but nothing effective as far as drug development goes.

The reason why Americans are basically funding drug development is because that is where the market is. The rest of the world either does not have the money to generate revenue to fund drug development or very tightly regulates prices. Again the question is not if the US could go that route. It very easily could, the question is what would happen to drug development if it did?

Another approach would be for the US to pass a law that says that a drug could not be sold for any more in the US then it is sold elsewhere in the world. If that was done the pharmaceutical companies would stop selling elsewhere. The regulated countries would then either have to adjust their prices, or sue the pharmaceutical companies to force sales (more likely) or break patent protections and start making it themselves (even more likely).

No easy solution. Largely comes down to do you want to control price and probably impact future drug development, or do you want the development. Note that this is not talking about some things that can be done around the edges, but if you really want to address the issue this is the problem you face.

There was an excellent program on the PBS series "Frontline" some years ago called "Sick Around the World" which compared the healthcare systems of 5 developed countries. It was a very revealing documentary.

I recall the response of the Japanese minister of health when asked, "how many people in Japan went bankrupt or lost their homes because of illness and/or health care costs?" His reply: " Oh, my! No one! That would be shameful." I think it is still available at pbs.org/frontline if anyone is interested.

Thanks, Rick. While I'd venture to guess there are some folks who did have serious problems, the point is we need to be open to the idea that our system needs lots of work. Others aren't perfect, but that isn't our concern. Our concern must be to make our health care system responsive and reasonable in terms of costs.

wow...sorry I missed this post during my busy house insanity! Here's my 2cents...The drug companies in this country make me crazy! It is so absurd the amount of money spent to bring a drug to market. And, as you pointed out so well, Bob, why does it always have to be new?

You and I were both in media business. We know what those ad campaigns cost. It makes me blow a gasket everytime I see the 5 extra pages in a slick expensive magazine that are required to list ALL the potential side effects! I KNOW WHAT THAT COSTS! and, who's paying for it?? WE ARE!

Then the TV ad campaigns are ten seconds of what the drug is about and fifty seconds of all the potential side effects. Outrageous! To top that off I just learned THEY GET MAJOR TAX WRITE-OFFS FOR THOSE AD COSTS!! I'm sorry for shouting, but good lord...STOP THE MADNESS!Ok, I'm done now.b

The cost is largely driven by regulatory requirements. Very difficult to say what of the regulations can be trimmed back while still maintaining the need for drug safety. I spent 10 years on a committee trying to harmonize drug submission guidelines between the the US, Europe and Japan (the 3 biggest markets). For 5 years I represented the FDA for the second 5 I represented PhRMA. Significant costs were added because of differences between the 3 regions (one might require a 90 day trail, while it might be 120 day in another region, end result 2 different trials have to be run and written up in different ways.

The extra pages in adds are due to the requirements of the FDA that require all side effects and potential side effects are included in any advertisement. The reason why there are advertisements are due to the Supreme Court over turning laws that prevented advertisements due to freedom of speech.

Pharmaceutical companies have been greatly reducing salesforce sizes and sales related programs for years. Has not impacted product prices one bit. While the marketing campaigns in the media do have a price tag, you most of the time you only really see them for large market products (maybe 5% of the branded pharmaceuticals sold in the US). The size of the media budgets are a very very small part of a pharmaceutical companies overall budget, far less then sales force, education and other items in the commercial operations side of the business. Take a look in the 10k or 10Q filings for a major pharma company over the past 5-10 years.

Bob Lowry is the author of the definitive retirement guides: Living A Satisfying Retirement and Building A Satisfying Retirement.Bob has been profiled in Money Magazine & CNN Money as well as Ad Age Insight White Papers. He is a featured author in nationally released book, "65 Things To Do When You Retire," "65 Things To Do When You Retire - Travel," and "70 Things To Do When You Turn 70," as well as an original contributor to PBS's Next Avenue web site.